UK Watchdog Asks Ryanair To Cut Aer Lingus Stake To 5%, Airline To Appeal

(RTTNews) - Ryanair Holdings Plc. (RYA.L, RYAAY) Wednesday said it would appeal a ruling by the UK Competition Commission that the low-cost airline would be required to sell its 29.8 percent stake in Aer Lingus Group Plc. (AERL.L), down to 5 percent.

The Competition Commission or CC, in its final report published today, confirmed its provisional findings that Ryanair's minority shareholding had led or may be expected to lead to a substantial reduction of competition between the airlines on routes between Great Britain and Ireland.

The CC said the stake reduction would be accompanied by obligations on Ryanair not to seek or accept board representation or acquire more shares.

The CC is of the view Aer Lingus's commercial policy and strategy was likely to be affected by Ryanair's minority shareholding. This was likely to impede or prevent Aer Lingus from being acquired by, or combining with another airline, the watchdog noted.

The CC was also concerned that Ryanair's stake was likely to affect Aer Lingus's commercial policy and strategy by allowing Ryanair to block special resolutions, restricting Aer Lingus's ability to issue shares and raise capital and to limit Aer Lingus's ability to manage effectively its portfolio of Heathrow slots.

Ryanair's shareholding also had increased the likelihood of the airline mounting further bids for Aer Lingus.

Noting that Ryanair and Aer Lingus compete intensely for passengers traveling between Great Britain and Ireland, to the benefit of passengers, the CC said there is a tension between Ryanair's position as a competitor and its position as Aer Lingus's largest shareholder, and that Ryanair has an incentive to weaken its rival's effectiveness as a competitor.

''We were particularly concerned about Ryanair's ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive,'' Simon Polito, CC Deputy Chairman and Chairman of the Ryanair/Aer Lingus Inquiry Group, said.

Polito said Ryanair proposed various remedies to address the CC's specific concerns. But the Competition Commission believes that in a dynamic and uncertain sector such as the airline industry, it is inherently difficult to design remedies that would cater for all eventualities.

The Ryanair/Aer Lingus Inquiry Group included Simon Polito, Roger Davis, Carolan Dobson and Professor Michael Waterson.

The CC concluded that the effective and proportionate remedy that would address its concerns was to require a partial divestment of Ryanair's shareholding to 5 percent, facilitated by the appointment of a Divestiture Trustee.

Both Ryanair and Aer Lingus are Irish airlines. Ryanair had initially acquired a stake in Aer Lingus in late 2006. The company made two unsuccessful bids for Aer Lingus's remaining shares.

Ryanair's latest bid, made in July 2012, was prohibited by the European Commission in February and the airline lodged an appeal with the General Court against this decision in May.

The airline said it would appeal the ruling of the CC, saying it invented ''concerns'' in desperate attempt to justify pre-determined ruling.

Regarding competition, Ryanair said the European Commission recently ruled that competition between Ryanair and Aer Lingus has "intensified" since 2007. ''Under EU law, the UKCC has a duty of sincere cooperation with the EU, and cannot contradict or reach different conclusions to the European Commission's findings,'' the airline said.

Further, Ryanair said the CC has inexplicably dismissed its remedies. For example, the watchdog rejected Ryanair's offer to unconditionally sell its minority stake to any other airline that makes a bid for Aer Lingus and obtains acceptances from 50.1 percent of Aer Lingus' shareholders.

Ryanair also offered to support Aer Lingus' rights issues and any disposal of Aer Lingus' Heathrow slots, but these remedies were rejected by the UKCC.

The airline believes that the CC did not conduct any fair investigation and that it has now merely announced what was its pre-determined conclusion.

Ryanair's CEO Michael O'Leary said,'' "This report by the UKCC is bizarre and manifestly wrong but also entirely expected. From the first meeting with the UKCC it has been clear to us that Simon Polito's and Roger Davis' minds had been made up in advance and no truth or evidence was going to get in the way of their story.''

''This prejudicial approach to an airline is very disturbing, coming from an English government body that regards itself a model competition authority,'' O'Leary added.

Further, the company said Ryanair is one of the UK's largest airlines while Aer Lingus has a tiny presence in the UK, serving just 6 routes to the Republic of Ireland, accounting for less than 1 percent of all UK air traffic.

''This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK's total air traffic and concerns very few UK consumers, is yet another enormous waste of UK taxpayer resources from a body which took no action whatsoever when the two main UK airlines (BA and bmi) merged. It would appear to be a case of one rule for the UK airlines but an invented set of rules for two Irish airlines,'' Ryanair said.

RYA.L is currently losing nearly 2 percent in early morning trade at 6.39 pence.